There is no taxable income until such income is recognized.

Taxable income is
recognized when the: (2011 Bar Question)
(A) taxpayer fails to include the income in his income tax return.
(B) income has been actually received in money or its equivalent.
(C) income has been received, either actually or constructively.
(D) transaction that is the source of the income is consummated.
In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor and
received P250,000.00 as Christmas gift from her spinster aunt. She had no other
receipts for the year. She spent P150,000.00 for the operation of her beauty
parlor. For tax purposes, her gross income for 2010 is: (2011 Bar Question)
(A) P750,000.00.
(B) P500,000.00.
(C) P350,000.00.
(D) P600,000.00.
In 2010, Mr. Platon sent his sister Helen $1 ,000 via a telegraphic transfer through
the Bank of PI. The bank's remittance clerk made a mistake and credited Helen
with $1,000,000 which she promptly withdrew. The bank demanded the return of
the mistakenly credited excess, but Helen refused. The BIR entered the picture
and investigated Helen.
Would the BIR be correct if it determines that Helen earned taxable income under
these facts? (1%) (2013 Bar Question)
(A) No, she had no income because she had no right to the mistakenly credited funds.
(B) Yes, income is income regardless of the source.
(C) No, it was not her fault that the funds in excess of $1,000 were credited to her.
(D) No, the funds in excess of$1,000 were in effect donated to her.
PRT Corp. purchased a residential house and lot with a swimming pool in an
upscale subdivision and required the company president to stay there without
paying rent; it reasoned out that the company president must maintain a certain
image and be able to entertain guests at the house to promote the company's
business. The company president declared that because they are childless, he
and his wife could very well live in a smaller house.
Was there a taxable fringe benefit? (1%) (2013 Bar Question)
(A) There was no taxable fringe benefit since it was for the convenience of the employer
and was necessary for its business.
(B) There was a taxable fringe benefit since the stay at the house was for free.
(C) There was a taxable fringe benefit because the house was very luxurious.
(D) There was no taxable fringe benefit because the company president was only
required to stay there and did not demand free housing.
SUGGESTED ANSWER:
(B) There was a taxable fringe benefit since the stay at the house was for free.
First, the company president is not a rank-and-file employee. Thus, the housing benefit
is subject to fringe benefits tax pursuant to Section 33 of the NIRC and Section 2.33 (A)
of the RR No. 03- 98. Although the housing benefit to the President may be for the
convenience of the employer (PRT Corp.) or necessary to its business, still, it also
inured to the benefit of the President as his stay therein is for free. RR No. 03-98 also
provides for the guidelines and valuation of fringe benefits for purposes of computing
the portion which shall be subject to fringe benefits tax in cases where the fringe
benefits entail joint benefits to the employer and employee.
Thus, there was a taxable fringe benefit.
Income from dealings in property (real, personal, or mixed) is the gain or loss
derived: (2011 Bar Question)
(A) only from the cash sales of property.
(B) from cash and gratuitous receipts of property.
(C) from sale and lease of property.
(D) only from the sale of property.
Explain briefly whether the following items are taxable or non- taxable:
A. Gain arising from expropriation of property:
SUGGESTED ANSWER:
Taxable. There is a material gain, not excluded by law, realized out of a closed and
completed transaction. Gains from dealings in property are part of gross income. (Sec.
32(A)(3), NIRC).
B. Gain on the sale of a car used for personal purposes. (5%)
SUGGESTED ANSWER:
Gain on the sale of a car used for personal purposes is taxable. This is a gain derived
from dealings in property which is part of the taxpayer's gross income. (Sec. 32(A)(3),
NIRC). There is a material gain, not excluded by law, realized out of a closed and
completed transaction. (BAR 2005)
An individual, who is a real estate dealer, sold a residential lot in Quezon City at a
gain of P100,000.00 (selling price of P900,000.00 and cost is P800,00.00). The sale
is subject to income tax as follows: (2012 BAR)
a) 6% capital gains tax on the gain;
b) 6% capital gains tax on the gross selling price of fair market value, whichever is
higher;
c) Ordinary income tax at the graduated rates of 5% to 32% of net taxable income;
d) 30% income tax on net taxable income.
Mirador, Inc., a domestic corporation, filed its Annual Income Tax Return for its
taxable year 2008 on April 15, 2009. In the Return, it reflected an income tax
overpayment of PI,000,000.00 and indicated its choice to carry-over the
overpayment as an automatic tax credit against its income tax liabilities in
subsequent years.
On April 15,2010, it filed its Annual Income Tax Return for its taxable year 2009
reflecting a taxable loss and an income tax overpayment for the current year 2009
in the amount of P500,000.00 and its income tax overpayment for the prior year
2008 of PI ,000,000.00.
In its 2009 Return, the corporation indicated its option to claim for refund the total
income tax overpayment of P1,500,000.00
Choose which of the following statements is correct.
A. Mirador, Inc. may claim as refund the total income tax overpayment of
P1,500,000.00 reflected in its income tax return for its taxable year 2009;
B. It may claim as refund the amount of P500,000.00 representing its income tax
overpayment for its taxable year 2009; or
C. No amount may be claimed as refund. Explain the basis of your answer. (5%)
In March 2009, Tonette, who is fond of jewelries, bought a diamond ring for
P750,000.00, a bracelet for P250,000.00, a necklace for P500,000.00, and a brooch
for P500,000.00. Tonette derives income from the exercise of her profession as a
licensed CPA. In October 2009, Tonette sold her diamond ring, bracelet, and
necklace for only P1.25 million incurring a loss of P250,000.00. She used the
P1.25 million to buy a solo diamond ring in November 2009 which she sold for
P1.5 million in September 2010. Tonette had no other transaction in jewelry in
2010. Which among the following describes the tax implications arising from the
above transactions? (2011 Bar Question)
(A) Tonette may deduct his 2009 loss only from her 2009 professional income.
(B) Tonette may carry over and deduct her 2009 loss only from her 2010 gain.
(C) Tonette may carry over and deduct her 2009 loss from her 2010 professional
income as well as from her gain.
(D) Tonette may not deduct her 2009 loss from both her 2010 professional income
and her gain.
Federico, a Filipino citizen, migrated to the United States some six years ago and
got a permanent resident status or green card. He should pay his Philippine
income taxes on: (2011 Bar Question)
(A) the gains derived from the sale in California, U.S.A. of jewelry he purchased in
the Philippines.
(B) the proceeds he received from a Philippine insurance company as the sole
beneficiary of life insurance taken by his father who died recently.
(C) the gains derived from the sale in the New York Stock Exchange of shares of
stock in PLDT, a Philippine corporation.
(D) dividends received from a two year old foreign corporation whose gross
income was derived solely from Philippine sources.
Keyrand, Inc., a Philippine corporation, sold through the local stock exchange
10,000 PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2
million and realized a net gain of P200,000.00. How shall it pay tax on the
transaction? (2011 Bar Question)
(A) It shall declare a P2 million gross income in its income tax return, deducting
its cost of acquisition as an expense.
(B) It shall report the P200,000.00 in its corporate income tax return adjusted by
the holding period.
(C) It shall pay 5% tax on the first P100,000.00 of the P200,000.00 and 10% tax on
the remaining P100,000.00.
(D) It shall pay a tax of one-half of 1% of the P2 million gross sales.
In 2006, Mr. Vicente Tagle, a retiree, bought 10,000 CDA shares that are unlisted
in the local stock exchange for P10 per share. In 2010, the said shares had a book
value per share of P60 per share. In view of a car accident in 2010, Mr. Vicente
Tagle had to sell his CDA shares but he could sell the same only for P50 per
share. The sale is subject to tax as follows: (2012 BAR)
a) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50
selling price less P10 cost);
b) 5%/10% capital gains tax on the capital gain of P50 per share, arrived at by
deducting the cost (P10 per share) from the book value (P60 per share);
c) 5%/10% capital gains tax on the capital gain from sale of P40 per share (P50
selling price less P10 cost) plus donor’s tax on the excess of the fair market
value of the shares over the consideration;
d) Graduated income tax rates of 5% to 32% on the net taxable income from the
sale of the shares.
Interest income of a domestic commercial bank derived from a peso loan to a
domestic corporation in 2010 is: (2012 BAR)
a) Subject to the 30% income tax based on its net taxable income;
b) Subject to the 20% final withholding tax;
c) Subject to the 7.5% final withholding tax;
d) Subject to 10% final withholding tax.
ABC Corp. was dissolved and liquidating dividends were declared and paid to the
stockholders.
What tax consequence follows? (1%) (2013 Bar Question)
(A) ABC Corp. should deduct a final tax of 10% from the dividends.
(B) The stockholders should declare their gain from their investment and pay
income tax at the ordinary rates.
(C) The dividends are exempt from tax.
(D) ABC Corp. should withhold a 10% creditable tax.
SUGGESTED ANSWER:
(C) The dividends are exempt from tax.
Liquidating dividends are not income and are thus not subject to income tax. In Wise & Co., Inc. v. Meer
(G.R. No. 48231, June 30, 1947), the Supreme Court defined liquidating dividends as the dissolving
corporation’s payments to the stockholders for their surrender and relinquishment of interest in the
dissolving corporation. They are generally a return of capital. Liquidating dividends are unlike cash
and property dividends which are portions of corporate profits that are set aside for distribution to
the stockholders in proportion to their subscription to the capital stock of the corporation.
MGC Corp. secured an income tax holiday for 5 years as a pioneer industry. On
the fourth year of the tax holiday, MGC Corp. declared and paid cash dividends to
its stockholders, all of whom are individuals.
Are the dividends taxable? (1%) (2013 Bar Question)
(A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to
its stockholders.
(B) The dividends are tax exempt because of MGC Corp.'s income tax holiday.
(C) The dividends are taxable if they exceed 50% of MGC Corp.'s retained
earnings.
(D) The dividends are exempt if paid before the end of MGC Corp.'s fiscal year.
SUGGESTED ANSWER:
(A) The dividends are taxable; the tax exemption of MGC Corp. does not extend to its
stockholders.
MGC Corp. and its stockholders are separate tax entities under the NIRC.
Consequently, MGC Corp.’s tax exemption does not extend to its stockholders.
Under the NIRC, stockholders who receive dividends from a domestic corporation are
subject to the following scheduler income tax rates: 10% for Filipino citizens and
individual resident aliens; 20% for non-resident aliens engaged in trade or business;
and 15% for non-resident foreign corporations. Thus, the stockholder’s claim for the tax
exemption is unmeritorious.
For income tax purposes, the source of the service income is important for the
taxpayer, who is a: (2012 BAR)
a) Filipino citizen residing in Makati City;
b) Non-resident Filipino citizen working residing in London, United Kingdom;
c) Japanese citizen who is married to a Filipino citizen and residing in their family home
located Fort Bonifacio, Taguig City;
d) Domestic corporation.
During the audit conducted by the BIR official, it was found that the rental income
claimed by the corporation was not subjected to expanded withholding tax.
Accordingly, the claimed rental expense: (2012 BAR)
a) Is deductible from the gross income of the corporation, despite nonwithholding
of income tax by the corporation;
b) Is deductible from the gross income of the corporation, provided that the 5%
expanded withholding tax is paid by the corporation during the audit;
c) Is not deductible from gross income of the corporation due to non-withholding
of tax;
d) Is deductible, if it can be shown that the lessor has correctly reported the
rental income in his tax return.
Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident
citizen.
a) If the goods were produced from Ms. B's factory in the Philippines, is Ms. B's
income from the sale to Ms. C taxable in the Philippines? Explain.
b) If Ms. B is an alien individual and the goods were produced in her factory in
China, is Ms. B's income from the sale of the goods to Ms. C taxable in the
Philippines? Explain. (2015 Bar Question)
SUGGESTED ANSWER:
a. Yes, the income of Ms. B from the sale of ready-to-wear goods to Ms. C is taxable. A
nonresident citizen is taxable only on income derived from sources within the
Philippines. In line with the source rule of income taxation, since the goods are
produced and sold within the Philippines, Ms. B’s Philippine-sourced income is taxable
in the Philippines.
b. Yes, but only a proportionate part of the income. Gains, profits and income from the
sale of personal property produced by the taxpayer without and sold within the
Philippines, shall be treated as derived partly from sources within and partly without the
Philippines.
True or False. Gains realized by the investor upon redemption of shares of stock
in a mutual fund company are exempt from income tax. (2010 Bar Question)
The proceeds received under a life insurance endowment contract is NOT
considered part of gross income: (2011 Bar Question)
(A) if it is so stated in the life insurance endowment policy.
(B) if the price for the endowment policy was not fully paid.
(C) where payment is made as a result of the death of the insured.
(D) where the beneficiary was not the one who took out the endowment contract.
All the items below are excluded from gross income, except: (2012 BAR)
a) Gain from sale of long-term bonds, debentures and indebtedness;
b) Value of property received by a person as donation or inheritance;
c) Retirement benefits received from the GSIS, SSS, or accredited retirement
plan;
d) Separation pay received by a retiring employee under a voluntary retirement
program of the corporate employer.
SUGGESTED ANSWER:
d) Separation pay received by a retiring employee under a voluntary retirement program
of the corporate employer.
Section 32(B)(6), NIRC.
Political campaign contributions are NOT deductible from gross income: (2011
Bar Question)
(A) if they are not reported to the Commission on Elections.
(B) if the candidate supported wins the election because of possible corruption.
(C) since they do not help earn the income from which they are to be deducted.
(D) since such amounts are not considered as income of the candidate to whom
given.
The interest expense of a domestic corporation on a bank loan in connection with
the purchase of a production equipment: (2012 BAR)
a) Is not deductible from gross income of the borrower-corporation;
b) Is deductible from the gross income of the borrower-corporation during the
year or it may be capitalized as part of cost of the equipment;
c) Is deductible only for a period of five years from date of purchase;
d) Is deductible only if the taxpayer uses the cash method of accounting.
SUGGESTED ANSWER:
b) Is deductible from the gross income of the borrower-corporation during the year or it
may be capitalized as part of cost of the equipment.
Section 34(B)(3), NIRC.
True or False. A corporation can claim the optional standard deduction
equivalent to 40% of its gross sales or receipts, as the case may be. (2010 Bar
Question)
SUGGESTED ANSWER:
FALSE. The OSD should not exceed 40% of its gross income.
Dondon and Helena were legally separated. They had six minor children, all
qualified to be claimed as additional exemptions for income tax purposes. The
court awarded custody of two of the children to Dondon and three to Helena, with
Dondon directed to provide full financial support for them as well. The court
awarded the 6th child to Dondon's father with Dondon also providing full financial
support. Assuming that only Dondon is gainfully employed while Helena is not,
for how many children could Dondon claim additional exemptions when he files
his income tax return? (2011 Bar Question)
(A) Six children.
(B) Five children.
(C) Three children.
(D) Two children.
Premium payment for health insurance of an individual who is an employee in an
amount of P2,500 per year may be deducted from gross income if his gross salary
per year is not more than P250,000.(2010 Bar Question)
SUGGESTED ANSWER:
False. (Sec. 34(M), NIRC)
RAM got married to LISA last January 2003. On November 30, 2003, LISA gave
birth to twins. Unfortunately, however, USA died in the course of her delivery.
Due to complications, one of the twins also died on December 15, 2003.
In preparing his Income Tax Return (TTR) for the year 2003, what should RAM
indicate in the ITR as his civil status:
(a) single;
(b) married;
(c) Head of the family;
(d) widower;
(e) none of the above?
Why? Reason. (5%)
SUGGESTED ANSWER:
RAM should indicate (b) married” as his civil status in preparing his Income Tax Return
for the year 2003. The death of his wife during the year will not change his status
because should the spouse die during the taxable year, the taxpayer may still claim the
same exemptions (that of being married) as if the spouse died at the close of such year
(Section 35[C], NIRC). (BAR 2004)
True or False. A non-resident alien who stays in the Philippines for less than 180
days during the calendar year shall be entitled to personal exemption not to
exceed the amount allowed to citizens of the Philippines by the country of which
he is subject or citizen. (2010 Bar Question)
SUGGESTED ANSWER:
False. [Sec. 25(A)(1) in relation to Sec. 35, NIRC]
A non-resident alien who stays in the Philippines for less than 180 days during
the calendar year shall be entitled to personal exemption not to exceed the
amount allowed to citizens of the Philippines by the country of which he is
subject or citizen.
SUGGESTED ANSWER:
FALSE. [Sec. 25(A)(1) in relation to Sec. 35, NIRC.)
Premium payment for health insurance of an individual who is an employee in an
amount of P2,500 per year may be deducted from gross income if his gross salary
per year is not more than P250.000.
SUGGESTED ANSWER:
FALSE [Sec. 34(M), NIRC.]
The head priest of the religious sect Tres Personas Solo Dios, as the corporation
sole, rented out a 5,000 sq. m. lot registered in its name for use as school site of a
school organized for profit. The sect used the rentals for the support and upkeep
of its priests. The rented lot is: (2011 Bar Question)
(A) not exempt from real property taxes because the user is organized for profit.
(B) exempt from real property taxes since it is actually, directly, and exclusively
used for religious purposes.
(C) not exempt from real property taxes since it is the rents, not the land, that is
used for religious purposes.
(D) exempt from real property taxes since it is actually, directly, and exclusively
used for educational purposes.
Which of the following is an exclusion from gross income? (2014 Bar Question)
(A) Salaries and wages
(B) Cash dividends
(C) Liquidating dividends after dissolution of a corporation
(D) De minimis benefits
(E) Embezzled money
Passive income includes income derived from an activity in which the earner
does not have any substantial participation. This type of income is: (2011 Bar
Question)
(A) usually subject to a final tax.
(B) exempt from income taxation.
(C) taxable only if earned by a citizen.
(D) included in the income tax return.
Informer’s reward is subject to a final withholding tax of 10%.
SUGGESTED ANSWER:
TRUE. [Sec. 282, NIRC.}
A resident Filipino citizen (not a dealer in securities) sold shares of stocks of a
domestic corporation that are listed and traded in the Philippine Stock Exchange.
(2012 BAR)
a) The sale is exempt from income tax but subject to the 1⁄2 of 1% stock
transaction tax; Section 127, NIRC.
b) The sale is subject to income tax computed at the graduated income tax rates
of 5% to 32% on net taxable income;
c) The sale is subject to the stock transaction tax and income tax;
d) The sale is both exempt from the stock transaction tax and income tax.
A dealer in securities sold unlisted shares of stocks of a domestic corporation in
2010 and derived a gain of P1 Million therefrom. The gain is: (2012 BAR)
a) Taxable at 30% regular corporate income tax based on net taxable income; Section 22 (U) in relation
to Section 27, NIRC.
b) Taxable at 5%/10% capital gains tax based on net capital gain;
c) Taxable at 1/2 of 1% stock transaction tax based on the gross selling price or
fair market value, whichever is higher
d) Exempt from income tax
Which statement is correct? A non-stock, non-profit charitable association that
sells its idle agricultural property is: (2012 BAR)
a) Not required to file an income tax return nor pay income tax on the transaction
to the BIR, provided the sales proceeds are invested in another real estate
during the year;
b) Required to pay the 6% capital gains tax on the gross selling price of fair
market value, whichever is higher; Section 30, NIRC.
c) Mandated to pay the 30% regular corporate income tax on the gain from sale;
d) Required to withhold the applicable expanded withholding tax rate on the
transaction and remit the same to the BIR.
Prior to the VAT law, sales of cars were subject to a sales tax but the tax applied
only to the original or the first sale; the second and subsequent sales were not
subject to tax.
Deltoid Motors, Inc. (Deltoid) hit on the idea of setting up a wholly-owned
subsidiary, Gonmad Motors, Inc. (Gonmad), and of selling its assembled cars to
Gonmad at a low price so it would pay a lower tax on the first sale. Gonmad
would then sell the cars to the public at a higher price without paying any sales
tax on this subsequent sale.
Characterize the arrangement. (1%) (2013 Bar Question)
(A) The plan is a legitimate exercise of tax planning and merely takes advantage
of a loophole in the law.
(B) The plan is legal because the government collects taxes anyway.
(C) The plan is improper; the veil of corporate fiction can be pierced so that the
second sale will be considered the taxable sale.
(D) The government must respect Gonmad's separate juridical personality and
Deltoid's taxable sale to it.
SUGGESTED ANSWER:
(C) The plan is improper; the veil of corporate fiction can be pierced so that the second
sale will be considered the taxable sale.
The given problem is similar to the case of Commissioner of Internal Revenue v. Norton
and Harrison Company (G.R. No. L-17618, August 31, 1964). The Supreme Court held
that “a taxpayer may gain advantage of doing business thru a corporation if he pleases,
but the revenue officers in proper cases, may disregard the separate corporate entity
where it serves but as a shield for tax evasion and treat the person who actually may
take benefits of the transactions as the person accordingly taxable. To allow a taxpayer to deny tax
liability on the ground that the sales were made through
another and distinct corporation when it is proved that the latter is virtually owned by the
former or that they are practically one and the same is to sanction a circumvention of
our tax laws.”
ABS Corporation is a PEZA-registered export enterprise which manufactures
cameras and sells all its finished products abroad. Which statement is NOT
correct? (2012 BAR)
a) ABS Corporation is subject to the 5% final tax on gross income earned, in lieu
of all national and local taxes; Sections 23 & 24, RA 7916.
b) ABS Corporation is exempt from the 30% corporate income tax on net income,
provided it pays value added tax;
c) ABS Corporation is subject to the 30% corporate income tax on net income;
d) ABS Corporation is exempt from all national and local taxes, except real
property tax.
(2014 Bar Question)
(A) discounts given to senior citizens on certain goods and services.
(B) advertising expense to maintain some form of goodwill for the taxpayer’s
business.
(C) salaries and bonuses paid to employees.
(D) interest payment on loans for the purchase of machinery and equipment used
in business.
The excess of allowable deductions over gross income of the business in a
taxable year is known as: (2011 Bar Question)
(A) net operating loss.
(B) ordinary loss.
(C) net deductible loss.
(D) NOLCO.
A corporation can claim the optional standard deduction equivalent to 40% of its
gross sales or receipts, as the case may be.
SUGGESTED ANSWER:
FALSE [Sec. 34(L), NIRC, as amended by RA No. 9504.]
Sale of residential house and lot by an official of a domestic corporation to
another official in the same corporation for a consideration of P2.5 Million in 2011
is: (2012 BAR)
a) Exempt from VAT because the gross sales do not exceed P2.5 Million;
b) Exempt from VAT because the property sold is a capital asset, regardless of
the gross selling price; Section 106, NIRC.
c) Exempt from VAT because the seller is not a person engaged in real estate
business;
d) Taxable at 12% VAT output tax on the gross selling price of P2.5 Million.
Lualhati Educational Foundation, Inc., a stock educational institution organized
for profit, decided to lease for commercial use a 1,500 sq. m. portion of its school.
The school actually, directly, and exclusively used the rents for the maintenance
of its school buildings, including payment of janitorial services. Is the leased
portion subject to real property tax? (2011 Bar Question)
(A) Yes, since Lualhati is a stock and for profit educational institution.
(B) No, since the school actually, directly, and exclusively used the rents for
educational purposes.
(C) No, but it may be subject to income taxation on the rents it receives.
(D) Yes, since the leased portion is not actually, directly, and exclusively used for
educational purposes.
Zygomite Minerals, Inc., a corporation registered and holding office in Australia,
not operating in the Philippines, may be subject to Philippine income taxation on:
(A) gains it derived from sale in Australia of an ore crusher it bought from the
Philippines with the proceeds converted to pesos.
(B) gains it derived from sale in Australia of shares of stock of Philex Mining
Corporation, a Philippine corporation.
(C) dividends earned from investment in a foreign corporation that derived 40% of
its gross income from Philippine sources.
(D) interests derived from its dollar deposits in a Philippine bank under the
Expanded Foreign Currency Deposit System.
The capitalization rules may be resorted to by the BIR in order to compel
corporate taxpayers to declare dividends to their stockholders regularly.
SUGGESTED ANSWER:
TRUE. [Sec. 244, NIRC; Rev. Reg. No. 2-2001 implementing Sec. 29, NIRC.]
In 2009, Spratz, Inc.’s net profit before tax was P35 million while its operating
expenses was P31 million. In 2010, its net profit before tax was P40 million and its
operating expenses was P38 million. It did not declare dividends for 2009 and
2010. And it has no proposed capital expenditures for 2011 and the immediate
future. May Spratz be subject to the improperly accumulated tax on its retained
profits for 2009 and 2010? (2011 Bar Question)
(A) Yes, since the accumulated amounts are reasonable for operations in relation
to what it usually needed annually.
(B) Yes, since the accumulation is not reasonably necessary for the immediate
needs of the business.
(C) No, because there is no showing that the taxpayer's 2009 and 2010 net profit
before tax exceeded its paid-up capital.
(D) No, because the taxpayer is not shown to be a publicly-listed corporation, a
bank, or an insurance company.
Indicate whether each of the following individuals is required or not required to
file an income tax return: (2015 Bar Question)
a) Filipino citizen residing outside the Philippines on his income from sources
outside the Philippines.
b) Resident alien on income derived from sources within the Philippines.
c) Resident citizen earning purely compensation income from two employers
within the Philippines, whose income taxes have been correctly withheld.
d) Resident citizen who falls under the classification of minimum wage earners. e)
An individual whose sole income has been subjected to final withholding tax.
SUGGESTED ANSWER:
a. No, because a non-resident Filipino citizen is taxable only in income sourced within
the Philippines.
b. Yes because a resident alien is taxable for income derived from sources within the
Philippines.
c. Yes. A resident citizen who is earning purely compensation income from two
employers should file income tax return for not being qualified for substituted filing.
d. No. Under the law, all minimum wage earners in the private and public sector shall be
exempt from payment of income tax.
e. No. Under the law, an individual whose sole income has been subjected to final
withholding tax pursuant to Section 57(A) of the NIRC need not file a return.
The Tax Code allows an individual taxpayer to pay in two equal installments, the
first installment to be paid at the time the return is filed, and the second on or
before July 15 of the same year, if his tax due exceeds P2,000.
SUGGESTED ANSWER:
TRUE. [Sec. 56(A)(2), NIRC.]
The payor of passive income subject to final tax is required to withhold the tax
from the payment due the recipient. The withholding of the tax has the effect of:
(2011 Bar Question)
(A) a final settlement of the tax liability on the income.
(B) a credit from the recipient's income tax liability.
(C) consummating the transaction resulting in an income.
(D) a deduction in the recipient's income tax return.